NCLT Kolkata Rules, Absence Of Creditor's Name In Balance Sheet Does Not Negate Acknowledgment Of Debt
Pranav B Prem
The National Company Law Tribunal (NCLT), Kolkata Special Bench, consisting of Smt. Bidisha Banerjee (Judicial Member) and Shri Sameer Kakar (Technical Member), admitted a petition filed by the State Bank of India (SBI) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), thereby initiating the Corporate Insolvency Resolution Process (CIRP) against S R Timber Products Private Limited. The Tribunal held that the absence of the financial creditor's name in the corporate debtor’s balance sheet does not invalidate the acknowledgment of debt, as long as the figures disclosed are consistent with the outstanding liabilities.
Background and Debt History
The corporate debtor, a private limited company incorporated in 2004, had availed various working capital credit facilities from the financial creditor between 2008 and 2014. The initial credit sanction was made on 28.03.2008 for ₹13 crores, comprising both fund-based and non-fund-based facilities. Over subsequent years, the facilities were renewed and enhanced, with the sanctioned limit eventually rising to ₹57.25 crores by December 2011 and then ₹48.41 crores in March 2014.
These facilities were secured through a series of agreements including Supplemental Agreements of Loan-cum-Hypothecation executed on various dates and supported by the equitable mortgage of immovable properties created by deposit of title deeds. The mortgage covered properties detailed under Title Deed Nos. I-3702/2001, I-3460/2001, and I-1581/2003. Additionally, the corporate debtor had executed revival letters and continued to acknowledge the debt in its balance sheets.
Despite the credit extended and secured by extensive documentation, the corporate debtor failed to repay the dues, resulting in the classification of the account as a Non-Performing Asset (NPA) on 31.03.2014. A demand notice was subsequently issued by the financial creditor on 09.02.2015 for a sum exceeding ₹48 crores. The total outstanding, including interest calculated up to 31.03.2023, amounted to ₹111.70 crores.
Acknowledgment of Debt and Limitation
The financial creditor relied heavily on the balance sheets of the corporate debtor for the financial years ending on 31.03.2016, 31.03.2018, 31.03.2020, and 31.03.2021, asserting that these contained acknowledgments of the debt due under the working capital loan. It was contended that these acknowledgments attracted the application of Section 18 of the Limitation Act, thereby extending the limitation period.
Although the name of SBI did not appear explicitly in the balance sheets for 2016, 2020, and 2021, the Tribunal noted that the figures disclosed therein matched the loan outstanding as disclosed in the 2018 balance sheet, which did refer to SBI. This consistency in figures across multiple financial years was found sufficient to constitute an acknowledgment of debt.
Further, the corporate debtor had submitted a One Time Settlement (OTS) proposal on 30.03.2023, offering full and final settlement of dues. The Tribunal observed that the issuance of such a proposal amounts to a clear and unequivocal acknowledgment of debt and default.
Contentions by the Corporate Debtor
The corporate debtor challenged the maintainability of the petition primarily on the ground of limitation. It was argued that no valid acknowledgment of debt existed between 2008 and 2014 and that the revival letter issued in 2010 was vague as it did not mention any default or specific amount. It was further contended that the OTS proposal could not revive limitation that had already expired and that the absence of the financial creditor’s name in certain balance sheets weakened the claim.
These submissions were rejected by the Tribunal, which found that the acknowledgments, both in the form of financial statements and the OTS proposal, were valid under Section 18 of the Limitation Act. The Tribunal emphasized that limitation is a mixed question of law and fact and that in this case, the acknowledgments were sufficient to save the limitation period.
Tribunal’s Findings and Legal Principles
The bench affirmed that all four essential requirements for admission of an application under Section 7 of the IBC—existence of debt, occurrence of default, adherence to limitation, and meeting of threshold—were fulfilled in this case.
Relying on the Supreme Court’s judgment in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal (2021 SCC OnLine SC 321), the Tribunal reiterated that acknowledgment of debt in a balance sheet qualifies as acknowledgment in writing under Section 18 of the Limitation Act.
It further invoked Anuj Jain v. Axis Bank Ltd. [(2020) 8 SCC 401] to reiterate that for a debt to qualify as a financial debt under the IBC, it must involve a disbursal against consideration for the time value of money. The judgment also referred to Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund [(2021) 6 SCC 436], which clarified that a debt, a default, and their relationship with a financial creditor must be clearly established for triggering CIRP.
The Tribunal also took note of the creation and extension of equitable mortgage by the deposit of title deeds, along with consistent financial reporting, to reject the debtor’s argument that its liability was unsubstantiated.
Verdict
Finding the application to be complete in all respects, the NCLT Kolkata admitted the petition filed by SBI and ordered the initiation of CIRP against S R Timber Products Private Limited. A moratorium under Section 14 of the IBC was imposed, and Mr. Neeraj Kumar Sureka was appointed as the Interim Resolution Professional (IRP). The Tribunal directed immediate public announcement and mandated full cooperation from the corporate debtor, including disclosure of all documents and information to the IRP.
Thus, the Tribunal concluded that acknowledgment of debt need not necessarily name the financial creditor if the surrounding facts and figures consistently reflect the liability, reinforcing the binding nature of financial statements and OTS offers under the IBC framework.
Appearance
For the Financial Creditor: Mr. Snehasish Chakraborty, Advocate
For the Corporate Debtor: Mr. Shaunak Mitra, Advocate,Mr. Sourav Jain, Advocate
Cause Title: State Bank of India V. S R Timber Products Private
Case No: CP (IB) No. 27/KB/2024
Coram: Smt. Bidisha Banerjee [Member (Judicial)], Shri Sameer Kakar [Member (Technical)]
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